Explorers last year discovered only about a tenth as much oil as they have annually on average since 1960. This year, they will probably find even less, spurring new fears about their ability to meet future demand.
With oil prices down by more than half since the price collapse two years ago, drillers have cut their exploration budgets to the bone. The result: Just 2.7 billion barrels of new supply was discovered last year, the smallest amount since 1947, according to figures from Edinburgh-based consulting firm Wood Mackenzie Ltd.
This year, drillers found just 736 million barrels of conventional crude as of the end of last month.
That is a concern for the industry at a time when the US Energy Information Administration estimates that global oil demand will grow from 94.8 million barrels a day this year to 105.3 million barrels in 2026.
While the US shale boom could potentially make up the difference, prices locked in below US$50 a barrel have undercut any substantial growth there.
New discoveries from conventional drilling, meanwhile, are “at rock bottom,” said Nils-Henrik Bjurstroem, a senior project manager at Oslo-based consultant Rystad Energy AS. “There will definitely be a strong impact on oil and gas supply, and especially oil.”
Global inventories have been buoyed by full-throttle output from Russia and OPEC. They have flooded the world with oil despite depressed prices as they defend market share.
However, years of under-investment will be felt as soon as 2025, Bjurstroem said. Producers will replace little more than one in 20 of the barrels consumed this year, he said.
Global spending on exploration, from seismic studies to actual drilling, has been cut to US$40 billion this year from about US$100 billion in 2014, Wood Mackenzie vice president for global exploration Andrew Latham said.
Moving ahead, spending is likely to remain at the same level through 2018, he said.
Exploration is easier to scratch than development investments because of shorter supplier-contract commitments.
This year, it will make up about 13 percent of the industry’s spending, down from as much as 18 percent historically, Latham said.
The result is less drilling, even as the market downturn has driven down the cost of operations. There were 209 wells drilled through this month, down from 680 last year and 1,167 in 2014, according to Wood Mackenzie. That compares with an annual average of 1,500 in data going back to 1960.
Ten years down the line, when the low exploration data being seen now begins to hinder production, it will have a “significant potential to push oil prices up,” Bjurstroem said.
“Exploration activity is among the easiest things to regulate, to take up and down,” Statoil ASA CEO Eldar Saetre said in an interview at the ONS Conference in Stavanger, Norway on Monday. “It’s not necessarily the right way to think. We need to keep a long-term perspective and maintain exploration activity through downturns as well, and Statoil has.”
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